Written by: Francisco D'Angelo
When companies decide to go to outsourcing, do they have a hard time deciding how much control they should give to a third party? Generally YES and that is why the outsourcing of the supply chain processes (or Supply Chain Management – SCM) is usually limited to transportation because it is an area where quantifiable and easy to measure savings are generated; In addition, if the third party fails, it is easy to regain control.
On the other hand, when more processes are outsourced, it is usually decided to divide the projects among several suppliers, assigning for example: Customs loading one, Customs to another and so on to different suppliers other processes. This philosophy assumes that many players will decrease the risk of failing, but in reality if one part of the chain fails, the rest will follow it; if the loading agency fails and the shipment does not arrive in time, the distribution of the final product will not reach the store and the sale will be lost.
Is the SCM then a linear function with independent activity modules?
Well NO, it’s a network of connected functions; timely dispatch not only depends on the carriers, it also depends on customs, available inventory and IT systems. For this reason, companies that seek to optimize efficiency in the supply chain and guarantee service to specific customers, must synchronize these activities, but while the tasks are separated among several suppliers, the responsibility will be fragmented at the same time as the risk is enhanced.
Why is an integrative approach important?
Working with a single supplier along the supply chain, from suppliers to customers, offers the possibility of transferring all responsibility to a single company to whom to ask for accounts when a failure is identified. Ideally, a SCM provider provides the full range of activities associated with the supply chain: plan, supply, manufacture and deliver. Also, working with a single provider allows you to see errors within the entire chain; information that is invaluable when it comes to improving customer service, reducing costs, minimizing capital requirements and accelerating the cash cycle.
Additionally, SCM suppliers are exposed to the best practices across the industries, being able to suggest business processes and evaluation techniques that give them a competitive advantage in the market.
Take the step:
To ensure success with a single SCM source, it is necessary:
- First, trust that the provider will be able to operate a national network and meet the customer’s needs today and into the future.
- Second, to know the breadth of its capabilities, services, good practices ratios, leadership and customer base.
- Third, to have a continuous investment in information technology to connect all its chain partners: suppliers, agents, factories, warehouses, stores.
Both client and supplier of SCM, need to have a clear vision of the change and question the following: Are assets being reduced to improve customer service? Is it required to match the service of the competition? Do you want to reduce costs? It should be considered that each case requires a different design of the supply chain, results metrics or ratios and different change processes, and that these must be established beforehand so that they assume their responsibilities.
To achieve optimal results, suppliers and customers must commit to the process of change and be aware of the time required to achieve them. In this sense, it is very important for the client to find an SCM provider with the power of continuity and strength in the market.
Finally, you should ask yourself if it is worth the investment, because the correct SCM provider and the correct plan can generate financial, customer and operational improvements that are impossible to obtain through internal reengineering. The correct SCM provider is good for today, but it is better for the future.